Change Is Not Enough, But It Is Time to Bring in the New
Wednesday, August 2nd, 2006
By Inya Ivkovic, MA for Profit Confidential
If you follow Canadian press, you could say that the Bank of Canada’s governor, David Dodge, is not a happy man. In one of my previous Profit Confidential articles, I wrote about Mr. Dodge being annoyed with the Canada Mortgage and Housing Corporation. Now he’s peeved at how International Monetary Fund (IMF) is run.
It is no secret that our neighbors south of the border have the major voting power at IMF. So, Mr. Dodge is pushing to change things and give emerging economic powerhouses, such as China, India, South Korea, and Mexico a louder voice.
If we lived in an ideal world, IMF would be an impartial body, dedicated to promoting open and smooth-running international financial markets and systems. However, things appear anything but open and smooth-running at IMF.
For example, bilateral trade agreements, an idea brought about by IMF some 50 years ago, are meant to speed up moving of goods and services across borders. But, as Canada’s forestry industry can attest, sometimes these agreements don’t work because countries with more global economic power can do more or less as they please, while international financial organizations, such as IMF, remain powerless because of the unequal distribution of power at their very centre.
At a recent Canada-Chile Chamber of Commerce conference in Santiago, Chile, Mr. Dodge called for ways to correct this unequal distribution of power. He explained his concerns with concrete examples. For starters, the U.S. has a dominant voice at IMF. Yet, the country is hauling an unsustainable debt load. It seems that dominant voice is unjustified, particularly considering that emerging economies in Asia have to beg their citizens to spend more money currently locked in bulging savings accounts.
According to Mr. Dodge, if countries with positive balances between national savings and debt had more influence at IMF, it could help with the reduction of global inflation and inflation- related economic instabilities.
In my humble opinion, institutions such as the World Bank and IMF have long outlived their purpose. The world has changed immensely since these institutions were first instituted after WWII ended. Policies and strategies that made sense some 50 years ago are hardly applicable in the 21st century.
Mr. Dodge is right to complain, but I don’t think a restructuring of IMF will make any difference. Old habits are the last to die. What the world financial systems need is a fresh start, a new international financial organization(s) equipped with new and fresh minds that can learn and adapt fast to our ever-changing realities.
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